Reacting to perceived market failures leading to under-optimal levels of firm-sponsored training, governments all over the world have stepped in with various policy instruments to alleviate this problem, using incentives such as regulation or co-financed schemes directed at firms or at individuals. Despite the widespread use of these schemes, rigorous empirical evaluation of such policies is uncommon. In this paper, we provide a careful evaluation of a reform in a train-or-pay scheme used in Canada that exempted medium-sized workplace from the training requirement. Our identification strategy involves comparing changes in training levels in medium-sized workplaces, before and after the reform, to changes for both smaller and larger workplaces. We also compare relative changes in training intensities to those observed in a neighboring province in which no such changes took place. We find the policy had no impact on training levels but caused firms to change their human capital investments portfolio, substituting informal and formal training."> Reacting to perceived market failures leading to under-optimal levels of firm-sponsored training, governments all over the world have stepped in with various policy instruments to alleviate this problem, using incentives such as regulation or co-financed schemes directed at firms or at individuals. Despite the widespread use of these schemes, rigorous empirical evaluation of such policies is uncommon. In this paper, we provide a careful evaluation of a reform in a train-or-pay scheme used in Canada that exempted medium-sized workplace from the training requirement. Our identification strategy involves comparing changes in training levels in medium-sized workplaces, before and after the reform, to changes for both smaller and larger workplaces. We also compare relative changes in training intensities to those observed in a neighboring province in which no such changes took place. We find the policy had no impact on training levels but caused firms to change their human capital investments portfolio, substituting informal and formal training."> Reacting to perceived market failures leading to under-optimal levels of firm-sponsored training, governments all over the world have step">
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Do Train-or-Pay Schemes Really Increase Training Levels?

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  • Benoit Dostie
Abstract
type="main" xml:id="irel12092-abs-0001"> Reacting to perceived market failures leading to under-optimal levels of firm-sponsored training, governments all over the world have stepped in with various policy instruments to alleviate this problem, using incentives such as regulation or co-financed schemes directed at firms or at individuals. Despite the widespread use of these schemes, rigorous empirical evaluation of such policies is uncommon. In this paper, we provide a careful evaluation of a reform in a train-or-pay scheme used in Canada that exempted medium-sized workplace from the training requirement. Our identification strategy involves comparing changes in training levels in medium-sized workplaces, before and after the reform, to changes for both smaller and larger workplaces. We also compare relative changes in training intensities to those observed in a neighboring province in which no such changes took place. We find the policy had no impact on training levels but caused firms to change their human capital investments portfolio, substituting informal and formal training.

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  • Benoit Dostie, 2015. "Do Train-or-Pay Schemes Really Increase Training Levels?," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 54(2), pages 240-255, April.
    • Handle: RePEc:bla:indres:v:54:y:2015:i:2:p:240-255
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    References listed on IDEAS

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    1. Laura Abramovsky & Erich Battistin & Emla Fitzsimons & Alissa Goodman & Helen Simpson, 2011. "Providing Employers with Incentives to Train Low-SkilledWorkers: Evidence from the UK Employer Training Pilots," Journal of Labor Economics, University of Chicago Press, vol. 29(1), pages 153-193, January.
    2. Edwin Leuven & Hessel Oosterbeek, 2004. "Evaluating the Effect of Tax Deductions on Training," Journal of Labor Economics, University of Chicago Press, vol. 22(2), pages 461-488, April.
    3. Stevens, Margaret, 2001. "Should Firms Be Required to Pay for Vocational Training?," Economic Journal, Royal Economic Society, vol. 111(473), pages 485-505, July.
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    9. Abowd, John M. & Kramarz, Francis, 1999. "The analysis of labor markets using matched employer-employee data," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 40, pages 2629-2710, Elsevier.
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    11. Stevens, Margaret, 1994. "A Theoretical Model of On-the-Job Training with Imperfect Competition," Oxford Economic Papers, Oxford University Press, vol. 46(4), pages 537-562, October.
    12. Almeida, Rita K. & Aterido, Reyes, 2011. "On-the-job training and rigidity of employment protection in the developing world: Evidence from differential enforcement," Labour Economics, Elsevier, vol. 18(S1), pages 71-82.
    13. Edwin Leuven, 2005. "The Economics of Private Sector Training: A Survey of the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 19(1), pages 91-111, February.
    14. Barron, John M & Black, Dan A & Loewenstein, Mark A, 1987. "Employer Size: The Implications for Search, Training, Capital Investment, Starting Wages, and Wage Growth," Journal of Labor Economics, University of Chicago Press, vol. 5(1), pages 76-89, January.
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    2. Gerard J. van den Berg & Christine Dauth & Pia Homrighausen & Gesine Stephan, 2023. "Informing employees in small and medium‐sized firms about training: Results of a randomized field experiment," Economic Inquiry, Western Economic Association International, vol. 61(1), pages 162-178, January.
    3. Konstantinos Angelopoulos & Andrea Benecchi & Jim Malley, 2017. "Can Subsidising Job-Related Training Reduce Inequality?," CESifo Working Paper Series 6605, CESifo.
    4. Dan A. Black & Lars Skipper & Jeffrey A. Smith & Jeffrey Andrew Smith, 2023. "Firm Training," CESifo Working Paper Series 10268, CESifo.
    5. Sofie Cabus & Eszter Nagy, 2021. "On the productivity effects of training apprentices in Hungary: evidence from a unique matched employer–employee dataset," Empirical Economics, Springer, vol. 60(4), pages 1685-1718, April.

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